REA Group Limited (ASX: REA) has reported its FY21 half year result, is it time to buy shares?
REA’s FY21 half year result
The property portal business reported that its revenue was down 2% to $430.4 million.
In Australia, the residential property market showed continued signs of recovery with national residential listings increasing 4% for the half including an increase in Sydney listings of 19%. However, COVID-19 lockdown measures in Melbourne caused listings to decline 44% in the first quarter, though listings rebounded in the second quarter, leading to an overall decline of 11% for the half.
Financial services operating revenue increased by 12% due to higher settlements and improved broker productivity.
The company continued to focus on reducing costs, so it managed to reduce operating expenses by 13% to $145.8 million. All cost categories decreased due to a combination of ongoing cost initiatives, COVID-19 related savings and the deferral of some marketing spend into the second half.
This led to EBITDA (EBITDA explained) rising by 9% to $290.2 million and the EBITDA margin improved from 61% to 67%.
Net profit after tax grew by 13% to $172 million. Profit / earnings per share (EPS) went up 13% to 130.7 cents.
New investments
REA Group said that on 1 December 2020 it acquired 17.9% of Realtair and in January it increased its holding to 19.99% for a total investment of $7.3 million. It’s a property technology platform that provides an end to end real estate sales solution. It allows agents to pitch, sign, automate and streamline the steps from property appraisal to settlement through mobile technology.
On 4 February 2021 it entered into a binding agreement to acquire 27% of Campaign Agent. It owns VPAPay, which REA Group said was the market leading buy now, pay later option for vendor paid advertising and other financial solutions to the residential real estate market.
Existing investments
In Asia, where REA operates businesses in Malaysia, Hong Kong, Thailand and China, Asian revenue dropped 38% due to many different COVID-19 impacts. EBITDA (before associates and joint ventures) was $1.7 million.
Elara contributed an equity accounted loss of $2.4 million in this result.
In North America, where it owns 20% of Move Inc, it made an equity accounted profit of $9.4 million, up from a $1.5 million loss last year.
REA Group dividend
The REA Group board decided to increase the interim dividend by 7% to 59 cents per share.
Time to buy REA Group shares?
In January, national residential listings were flat, with an increase in Melbourne of 12% and a decline in Sydney of 1%. Developer revenues are expected to be supported by growth in new developments in FY21. REA Group is expecting its full year expenses for FY21 to be the same as FY20.
Using the estimates on CommSec, REA Group shares are priced at 51 times the potential earnings for the 2022 financial year.
REA Group is a great business, but that’s too expensive for me to consider buying shares. In the property space I’d rather buy the building products business Brickworks Limited (ASX: BKW) which has diverse assets.
Instead of REA Group, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
